Chapter 2: Role of Logistics in Supply Chains

1
Chapter 2 Role of Logistics in Supply Chains

• Learning Objectives
• After reading this chapter, you should be able to
  do the following
• Understand the role and importance of logistics
  in private and public organizations.
• Discuss the impact of logistics on the economy
  and how effective logistics management
  contributes to the vitality of the economy.
• Understand the value-added roles of logistics on
  both a macro and micro level.
• Explain logistics systems from several
  perspectives.

2

• Learning Objectives (cont.)
• After reading this chapter, you should be able to
  do the following
• Understand the relationship between logistics and
  other important functional areas in an
  organization, including manufacturing, marketing,
  and finance.
• Discuss the importance of management activities
  in the logistics function.
• Analyze logistics systems from several different
  perspectives to meet different objectives.
• Determine the total costs and understand the cost
  tradeoffs in a logistics system

3
Source Center for Supply Chain Research, Penn
State University (2008).
4

• What is Logistics?
• Logistics management
• Business logistics management
• Integrated logistics management
• Materials management
• Physical distribution management
• Marketing logistics
• Industrial logistics
• Distribution

5
(No Transcript)
6

• Logistics Definitions
• Inventory
• Management of materials in motion and at rest
• Customer
• Getting the right product, to the right customer,
  in the right quantity, in the right condition, at
  the right place, at the right time, and at the
  right cost (called the dictionary seven Rs of
  logistics)
• International Society of Logistics
• The branch of military science having to do with
  procuring, maintaining, utility/ value and
  transporting material, personnel, and facilities
• Council of Supply Chain Management
• The art and science of management, engineering,
  and technical activities concerned with
  requirements, design, and supplying and
  maintaining resources to support objectives,
  plans, and operations

7

• Logistics Definitions
• Component support
• Providing time and place utility/value of
  materials and products in support of Functional
  management organization objectives
• Common culture
• That part of the supply chain process that plans,
  implements, and controls the efficient, effective
  flow and storage of goods, services, and related
  information from point of origin to point of
  consumption in order to meet customer
  requirements
• Supply management for the plant (inbound
  logistics) and distribution
• Management for the firms customers materials
  requirements, purchasing, transportation,
  inventory management, warehousing, materials
  handling, industrial packaging, facility location
  analysis, distribution, return goods handling,
  information management, customer service, and all
  other activities concerned with supporting the
  internal customer (manufacturing) with materials
  and the external customer (retail stores) with
  product

8

• Four Subdivisions of Logistics
• Business logistics
• That part of the supply chain process that
  plans, implements, and controls the efficient,
  effective flow and storage of goods, service, and
  related information from point of use or
  consumption in order to meet customer
  requirements.
• Military logistics
• The design and integration of all aspects of
  support for the operational capability of the
  military forces (deployed or in garrison) and
  their equipment to ensure readiness, reliability,
  and efficiency.
• Event logistics
• The network of activities, facilities, and
  personnel required to organize, schedule, and
  deploy the resources for an event to take place
  and to efficiently withdraw after the event.
• Service logistics
• The acquisition, scheduling, and management of
  the facilities/assets, personnel, and materials
  to support and sustain a service operation or
  business.

9

• Value-Added Roles of Logistics
• The five principal types of economic utility
  which add value to a product or service are
• Form
• Time
• Place
• Quantity
• Possession

10
Source Center for Supply Chain Research, Penn
State University (2008).
11

• Logistics Activities
• Transportation
• Warehousing and storage
• Industrial packaging
• Materials handling
• Inventory control
• Order fulfillment
• Demand forecasting
• Production planning/scheduling
• Procurement
• Customer service
• Facility location
• Return goods handling
• Parts and service support
• Salvage and scrap disposal

12
Logistics Costs as a Percentage of GDP
Figure 2-3
13 12 11 10 9 8 7 6 5 4 3 2 1 0
12.3
Year
Source 17th Annual State of Logistics Report,
2006
13
Source 18th Annual State of Logistics Report,
2007
14
(No Transcript)
15

• Logistics in the Firm The Micro Dimension
• Another dimension of logistics is the micro
  perspective which examines the relationships
  between logistics and other functional areas in
  an organization
• Marketing
• manufacturing/operations
• Finance
• Accounting
• Others

16
The impact that logistics can have upon return on
assets (ROA) or return on investment (ROI) is
very significant

• ROA is defined as follows
• ROA Revenue - Expenses/Assets Or
• ROA Gross Profit/Assets

17
(No Transcript)
18
The General Relationship of the Cost of Lost
Sales to Inventory Cost
Figure 2-7
Flow TC Total cost INV Inventory costCOLS
Cost of lost sales
19
Figure 2-8 The General Relationship of the Cost
of Lost Sales to Transportation Cost
Improved transportation service
Flow --------------------------------------------
---------
TC Total cost Tr Transportation cost COLS
Cost of lost sales
20
(No Transcript)
21
Fig 2 -10 The General Relationship of Product
Weight Density to Logistics Costs
Weight density of product
Flow ---------------------------------------------
-------------
Tr Transportation cost Inv Inventory cost
(including storage) Whse Warehousing cost
22
Figure 2-11 The General Relationship of Product
Susceptibility to Loss and Damage to Logistics
Cost
Susceptibility to loss and damage
Flow ---------------------------------------------
---------------------
Pkg Packaging cost Tr Transportation cost
Whse Warehousing cost
23

• Spatial Relationships
• Spatial Relationships are extremely significant
  to logistics is spatial relationships, the
  location of fixed points in the logistics system
  with respect to demand and supply points. Spatial
  relationships are very important to
  transportation costs, since these costs tend to
  increase with distance.

24
Figure 2-12 Logistics and Spatial Relations
25
(No Transcript)
26

• Techniques of Logistics System Analysis

Short-Run/Static Analysis
Long-Run/Dynamic Analysis
27

• Nodes
• The nodes are fixed spatial points where goods
  stop for storage or processing.
• Links
• The links represent the transportation network
  and connect the nodes in the logistics system.

28
(No Transcript)
29
(No Transcript)
30
(No Transcript)
31
(No Transcript)
32
(No Transcript)
33
(No Transcript)
34
(No Transcript)
35

• Chapter 2 Summary
• Logistics has developed as an important area or
  function of business since World War II. It has
  gone through several phases of development in
  achieving its present status.
• Logistics is a critical part of supply chain
  management. The coordination and, perhaps,
  integration of the logistics systems of all the
  organizations in a supply chain are necessary
  requirements for successful management of the
  supply chain.
• Logistics has a number of different definitions
  because of the broad-based interest in its
  activities and the recognition of its importance.
  The definition developed by the Council of Supply
  Chain Management Professionals is the primary
  definition used in this text.
• Logistics is an area of management that has four
  subdisciplines business, military, service, and
  event.

36

• Chapter 2 Summary (cont.)
• On a macro basis, logistics-related costs have
  been decreasing on a relative basis, which has
  helped the U.S. economy regain its competitive
  position on a global basis.
• Logistics adds place, time, and quantity
  utilities to products and enhances the form and
  possession utilities added by manufacturing and
  marketing.
• Logistics has an important relationship to
  manufacturing, marketing, finance, and other
  areas of the organization.
• Logistics managers are responsible for a number
  of important activities, including
  transportation, inventory, warehousing, materials
  handling, industrial packaging, customer service,
  forecasting, and others.

37

• Chapter 2 Summary (cont.)
• Logistics systems can be viewed or approached in
  several different ways for analysis purposes,
  including materials management versus physical
  distribution, cost centers, nodes versus links,
  and channels. All four approaches are viable for
  different purposes.
• Logistics systems are frequently analyzed from a
  systems approach, which emphasizes total cost and
  tradeoffs when changes are proposed. Either a
  short- or long-run perspective can be used.
• The cost of logistics systems can be affected by
  a number of major factors, including competition
  in the market, the spatial relationship of nodes,
  and product characteristics.